Real estate wealth tax: are you concerned?
It has been four years since the Immobilière Fortune Tax (IFI) replaced the Solidarity Fortune Tax (ISF). With a scope limited to real estate, it should generate just over two billion euros in revenue for the state in 2021.
Taxable assets
The transformation of ISF into IFI that entered into force on January 1, 2018 aims to concentrate the taxation of wealth on real estate assets and to exclude capital. Concretely, financial investments, cash and furniture are no longer taxable. Only the property and property rights that you own remain so.
You are subject to the IFI this year if your real estate assets on January 1, 2021 reached at least 1.3 million euros. To know if you exceed this threshold, you must take into account the real estate assets that you hold directly, but also those held indirectly through the securities of companies or investment organizations. Not easy to determine, especially if the company or organization in which you have invested has subsidiaries or interests in other structures. Fortunately, exceptions are provided for taxpayers who hold minority stakes in order not to increase their tax obligations. In addition, your professional real estate assets are totally exempt from IFI, and your rural real estate can benefit from a partial exemption up to 75% of its value.
Good to know. If you are subject to the IFI this year, you must complete an asset declaration n ° 2042-IFI. Its filing deadline is the same as that of your 2020 income tax return: May 20 if you complete your return on paper, May 26, June 2 or June 8 (depending on your department of residence) if you complete it online.
Market value, main residence and rental
Your real estate assets should be valued at their market value on January 1, 2021. This is the price at which you could have sold them on that date. The value of a building depends on the state of the real estate market (volume of transactions, sale times, etc.), its intrinsic characteristics (area, location, quality of materials, etc.) and extrinsic (proximity to transport, schools, shops ...), and legal factors that may affect it (town planning rules, easements, joint ownership ...). To help you assess your property, you can refer to the "Real estate valuation requests" database, available on the internet at https://app.dvf.etalab.gouv.fr/.
A 30% reduction automatically applies to the market value of the accommodation you occupied on January 1, 2021 as your main residence. However, if you hold your main residence through a Société Civile Immobilière (SCI), this allowance does not apply to the value of your shares.
You can also apply a discount to the value of the property you rent out, to take into account the effect that occupancy has on their value. However, this discount is not fixed by law. Its rate is in principle the higher the longer the lease term and the great the difficulty in recovering the property. For example, a discount of 25 to 40% is allowed for dwellings rented for use as a main residence. For goods rented under a professional lease or a second home rental contract, it is possible to apply a discount of around 10 to 20%. Finally, for premises rented by commercial lease, a discount greater than 20% is possible if the tenant has a right to remain in the premises.
Deductible debts are limited
You are taxable at the IFI on the net value of your real estate assets, that is to say after deduction of your debts existing on January 1, 2021. However, the debts deductible from your taxable assets are limited. Only those relating to your taxable real estate assets are deductible, those relating to “in fine” or non-term loans are capped, and those relating to family loans are excluded. In addition, if the value of your taxable assets exceeds 5 million euros, the fraction of your debts exceeding 60% of this value is only deductible up to 50%. For example, if your taxable assets are 6 million and your deductible debts are 4 million, you can fully deduct them up to 3.6 million (60% of 4 million) and 50% for the remainder of 400,000 euros. You can therefore only deduct 3.8 million of liabilities. Note, however, that this limitation does not apply to debts for which you can justify that they were not contracted for primarily fiscal purposes. This is particularly the case for debts incurred before you became liable to the IFI.
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